Although only a third of small companies currently offer their employees a pension scheme, a mere one in five has started to consider the financial impact of the government’s new auto-enrolment and NEST rules.
According to a survey of 404 small employers with 250 or fewer staff undertaken by the Association of Consulting Actuaries (ACA), the main reason for failing to provide pension schemes today relates to cost (96%). Some 21% of respondents that do offer such benefits plan to reduce their pension expenditure over the year ahead, however, while only 14% intend to increase it.
Moreover, most of the defined contribution pension schemes on offer are seeing combined employer and employee contributions of less than 8% of earnings, even though 15% is considered the optimum level if staff are to obtain a reasonable income in retirement. Eight per cent is the minimum contribution necessary under the new auto-enrolment policy, which is due to be introduced on a rolling basis between 2014 and early 2016.
ACA chairman Stuart Southall said: “Whilst the country’s dire economic position does not presently allow, it seems clear to me that if we are to encourage a much wider proportion of our people to save adequately for their retirement, we will need to make greater room for savings from individuals’ disposable incomes.”
This meant that employers required new financial incentives to boost their pension contributions as well as greater freedom in pension design based on greater transparency and lower-cost products, he added.
Some 62% of respondents, meanwhile, said that they plan to auto-enrol current non-joiners into existing schemes. One in five expect to close their existing schemes and auto-enrol all staff into NEST, while a fifth will restrict entry to their existing scheme and either place the balance in NEST or use it as a foundation scheme. Just under a quarter said they would auto-enrol personnel into a new third party scheme.
But most small employers expect as many of 35% of staff to opt out anyway, with the top two reasons being cost (84%) and because employees were disillusioned with pensions (66%).